Given the Cost of Living Emergency there has never been greater need (and tenant demand) for highly insulated new build homes which do not require high-cost gas or oil as an energy source; the majority of Build-to-Rent (BtR) schemes are fossil free (as required by their Institutional funders).
BtR homes are delivering such properties across Western economies in rapidly growing numbers including 237,362 homes in the UK (completed, under construction, in planning. Source: BPF) – mostly in England.
In Scotland, despite a slow start, momentum has been building with c.10,000 BtR homes in the pipeline. That progress was brought to a shuddering halt in September 2022 by the Scottish Governments’ Cost of Living (Tenant Protection) Act 2022 – otherwise known as the Rent Freeze legislation. The announcement by Scottish Government on 19th January 2023 that the rent cap would move up to 3% per annum goes some way towards repairing the damage done to investor confidence; a corrective step in the right direction at least.
BtR Homes – solving today’s biggest issues
Despite unprecedented demand for such modern accommodation, Scottish households are being denied the very homes that are best placed to solve many of today’s biggest issues:
- Cost of living crisis – BtR homes reduce running costs as they are highly insulated and mostly electrically heated.
- Interest rate rise – BtR homes provide a rental solution at a time of rapidly rising Mortgage costs; Institutional owner/operators are often willing to self-impose annual rent caps.
- Climate emergency – BtR homes increasingly utilise no fossil fuels as an energy source and are, in many cases, net-zero ready. Common to most BtR schemes being funded today are air source heat pumps, green roofs, and EV charging points.
- Fire standards – post the Grenfell Tower fire, the Institutional Funds behind BtR developments require fire standards that are often more stringent than required by current legislation.
- Mental health / Wellbeing – BtR developments are operated by professional management firms who actively promote a sense of community through physical and on-line group activities.
- Affordable Housing – BtR schemes (in Edinburgh) provide 25% Affordable Housing which is tenure blind and funded by the institutional investor. Unlike in a Private For Sale scheme, these Affordable Housing units do not make use of Grant funding, thereby freeing up that Grant funding for additional Affordable Housing; a win-win for the Affordable Housing sector.
The sustainability credentials in BtR homes are driven by the Institutional Funds (who generally provide the funding for such large-scale schemes) who have strict ESG requirements; as a result, those Developers who generally build out on behalf of the Funds are obligated to meet the highest environmental, social and governance standards in order to qualify for funding.
By way of emphasis, we highlight three leading BtR developer/funder/operators who have placed sustainability at the top of their agenda;
Example 1: HUB have partnered with funder Bridges (an impact-driven investment fund) to develop high-quality sustainable housing which “prioritises both people and planet”. At their recently consented BTR scheme in Edinburgh (Beaverhall, 205 homes – site acquired by Scarlett Land and Development) the design exceeds Scottish sustainability regulations in a net-zero ready scheme that includes a biodiverse green roof, as well as a communal air source heat pump to provide environmentally responsible heating for the entire building.
Example 2: Packaged Living partnered with Aviva Investors in 2021 to develop a £200m portfolio in the single-family market (houses as opposed to flats) with a focus on sustainability; this means going all electric; no gas boilers and fossil fuels replaced with air source heat pumps and photovoltaics as well as EV charging systems to encourage the use of electric cars. These changes require up-front expenditure but have long-term benefits to both tenant and owning funder.
Example 3: PLATFORM_ have partnered with Heimstaden Bostad to deliver 464 BtR homes in Bonnington Road Lane, Edinburgh with an emphasis on sustainability (sites assembled by Scarlett Land and Development). Due for completion in 2024, the energy source is all electric (no gas) with extensive use of PV panels, mechanically ventilated heat recovery (MVHR) in the apartments and EV charging provided for electric cars.
As stated by Stewart Knight, Acquisitions Director; “Investors, residents and planning authorities are rightly setting a high bar for sustainability measures and PLATFORM_ is responding with a robust sustainability policy that will be rolled out across all new projects going forward”.
Insatiable tenant demand
Tenant demand for such sustainable homes (with low running costs) is insatiable as demonstrated by the rapid let-up of Moda’s The McEwan BtR scheme in Fountainbridge, Edinburgh and L&G’s Solasta Riverside BtR scheme in Glasgow (L&G’s fastest let-up of any of their UK BtR schemes to date).
It is perhaps no surprise that demand across the UK is high for warm homes with low running costs and the highest sustainability credentials. In Manchester, the UK regional market leader for supply for BtR homes, c. 8,800 BtR homes have been completed; other English regional cities such as Birmingham, Leeds and Bristol are attracting large scale Institutional investment into BtR homes. There are c.140,000 BtR homes in UK regions (excluding London) complete, under construction or in planning (source: BPF). In all of Scotland only c.1,400 BtR homes have been completed (source: Scarlett Land and Development).
In order to switch back on the supply of Institutionally funded BtR housing on a large scale in Scotland – housing which answers the needs of many of the challenges faced by society today – the Scottish Government urgently needs to clarify the long-term rules surrounding rental growth in the private sector – and to do it through consultation through industry representative bodies such as the Scottish Property Federation (SPF).
BtR homes have a significant contribution to make to solving the cost of living emergency and to many other issues faced by society today. Institutional funders want to invest in Scotland but, as long-term investors, they require a clear and transparent regulatory environment in which to invest.